LONDON - The
pound is the "darling of the currency world" right now as it
finds a sweet spot during a lull in developments over Brexit, and
benefits from continued weakness in the dollar.

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Writing on Friday, Viraj Patel, currency strategist at Dutch bank
ING noted that "2018 is very much a different Brexit
trading environment for the pound," compared to the last
year and a half of pain following the UK's vote to leave the EU
back in June 2016.

"Gone are the days of noisy Brexit headlines stirring sharp
- and almost sentimental rather than fundamental - knee-jerk
moves in the currency, with the buffer of last month's Brexit
transition deal buying GBP investors some extra time to assess
the Brexit facts," Patel wrote.

The pound has shifted, Patel said, from trading on
political developments around Brexit, and moved towards trading
on cyclical factors like data, which provide a view of the state
of the British economy.

"With the next stage of negotiations surrounding a future
UK-EU trade deal, which begin next week, likely to be long-winded
and complex, it appears that we're back to good old-fashioned UK
data watching to determine the short-term direction for the
currency," he said.

That data driven trading means that the next week or so
could be a big one for the pound, with numerous data releases on
the immediate horizon.

Strong data next week, he added, should boost the pound
even further, as it is likely to increase the chances of the Bank
of England raising interest rates at its May meeting, which is
now just over two weeks away. Higher interest rates are, broadly
speaking mean higher currencies - so if the BoE does raise rates
from 0.5% to 0.75% on May 3, the pound should benefit.

"We think signs of firming wage growth next week may seal
the deal for a May BoE rate hike - though it is the UK activity
side that may hold the key to the pace of BoE normalisation and
GBP's cyclical re-pricing," Patel said.

The pound has traditionally performed well in April, regardless
of both the political and economic situations in the UK and
globally.

"April seasonality is approaching again for GBP, which tends to
rally no matter what the political/macro backdrop," Kamal Sharma,
a strategist at Bank of America Merrill Lynch wrote in a note to
clients in late March.

Sharma calculates that the pound has ended every April for the
last 14 years at a higher level against the dollar than it
started the month.

"Within the G10 FX complex, there is no stronger seasonality than
in GBP through April," Sharma wrote.

That trend includes major events including the financial
crisis, general elections, and the Brexit referendum.

The pound is currently trading at around $1.42, close to its
highest level since the Brexit vote, as the chart below shows:

source

Markets Insider

ING's forecast, considering all the above information, is that
the pound will continue to appreciate, ending the second quarter
at around $1.45.